India's informal economy, encompassing small and medium enterprises (SMEs) and household establishments, remains a cornerstone of the nation's economic structure. As of 2022-23, approximately 65 million informal enterprises employed around 110 million workers, underscoring the sector's substantial role in employment generation.
Recent data indicates a positive trajectory for employment within the informal sector. In the fiscal year 2023-24, small businesses across manufacturing, trade, and services added approximately 11 million jobs, elevating total employment to 120.6 million from 109.6 million in the previous year. This growth highlights the sector's resilience and its capacity to absorb labor, particularly in the face of economic challenges.
Despite these gains, the informal economy faces significant challenges. Over the past seven years, many units have ceased operations, resulting in the loss of approximately 16.45 lakh jobs, as reported by the Annual Survey of Unincorporated Enterprises (ASUSE). This contraction reflects the vulnerabilities of informal enterprises to economic fluctuations and underscores the need for supportive policies.
Additionally, the sector grapples with issues such as limited access to formal credit, lack of social security benefits, and inadequate infrastructure. These challenges hinder the growth potential of informal enterprises and affect the quality of employment within the sector.
In response to these challenges, the Indian government has introduced several initiatives aimed at formalizing the informal sector and enhancing employment quality. The introduction of the Goods and Services Tax (GST) has facilitated easier tax compliance for SMEs, while the Pradhan Mantri Mudra Yojana (PMMY) provides micro-financing options to support small businesses. Furthermore, the Atmanirbhar Bharat Abhiyan focuses on promoting self-reliance among SMEs through various support measures.
The informal economy in India continues to be a vital source of employment and economic activity. While recent trends indicate growth and resilience, addressing the sector's challenges is crucial for sustainable development. Ongoing policy efforts and reforms are essential to enhance the quality of employment and support the growth of informal enterprises, thereby contributing to the broader economic objectives of the nation.